TAXES ON RELOCATION EXPENSES

• Citation: 41 CFR Part 302-17
• Sections: 30

§ 302-17.1 Reimbursement for substantially all, and not exactly all, of the additional income taxes incurred as a result of a relocation.

Under 5 U.S.C. 5724b, employees are reimbursed for substantially all, not exactly all, of the Federal, State, and local income taxes incurred as a result of relocation. The withholding tax allowance (WTA) and relocation income tax allowance (RITA) are the two allowances through which the Government reimburses an employee for substantially all of the income taxes that they incur as a result of the relocation.

§ 302-17.2 Eligibility for the WTA and the RITA.

Employees are eligible for the WTA and the RITA if-

(a) WTA and RITA are listed under their type of move at §§ 302-3.1 and 302-3.100 of this chapter;

(b) They are relocating in the interest of the Government; and

(c) The agency's reimbursements to the employee for relocation expenses result in the employee being liable for additional income taxes.

§ 302-17.3 Limitations and Federal income tax treatments of various relocation reimbursements.

(a) Some relocation expenses reimbursed to employees or paid directly by the Government on or after January 1, 2018, and on or before December 31, 2025, must be reported as income and employees cannot claim them as deductible expenses on their Federal tax return.

(b) A table summarizing the allowances, limitations, and tax treatment of each reimbursement, allowance, or direct payment to a service provider or vendor set out in this subtitle is published at https://gsa.gov/ftrbulletins.

(c) Both the employee and their agency must know which reimbursements and direct payments to vendors are taxable and which are nontaxable in specific circumstances. When an employee submits a voucher for reimbursement, the agency must determine whether the reimbursement is taxable income at the Federal, State, and/or local level. Then, when an employee files their income tax returns, they must report the taxable allowances, reimbursements, and direct payments to vendors as income. Agencies are ultimately responsible for calculating and reporting withholding accurately and employees are ultimately responsible for filing their taxes correctly.

§ 302-17.4 Where to file relocation expenses for State taxes.

In most cases, the State tax return for the State an employee is leaving should reflect the reimbursement or allowance, if any, for househunting expenses and the reimbursement or direct payments to vendors for real estate expenses at the home the employee is leaving. All other taxable expenses should be shown as income on the tax return filed in the State into which the employee has moved. However, the employee and the agency must carefully study the rules in both States and include everything that each State considers to be income on each of the state tax returns.

§ 302-17.5 When an expense is considered completed in a specific tax year.

A reimbursement, allowance, or direct payment to a vendor is considered completed in a specific tax year if the money was actually disbursed to the employee or vendor during the tax year in question.

§ 302-17.20 Purpose of the WTA.

(a) The purpose of the WTA is to protect an employee from having to use part of their relocation expense reimbursements to pay Federal income tax withholding; it does not cover State taxes, local taxes, Medicare taxes, or Social Security taxes (see § 302-17.21(c) and (d)).

(b) The WTA may be optional to employees. Employees should review § 302-17.61 for discussion about choosing whether or not to accept the WTA. See §§ 302-17.62 through 302-17.67 for procedures if an employee chooses not to accept the WTA.

§ 302-17.21 Relocation expenses covered by the WTA.

The WTA covers certain allowances, reimbursements, and/or direct payments to vendors, to the extent that each of them is taxable income. However, the WTA does not cover the following relocation expenses:

(a) Any reimbursement, allowance, or direct payment to a vendor that should not be reported as taxable income when an employee files their Federal tax return; this includes but is not limited to expenses for transportation of POVs for OCONUS assignments.

(b) Reimbursed expenses for extended storage of household goods during an OCONUS assignment, if reimbursement is permitted under agency policy.

(c) State and local withholding tax obligations. To the extent that the employee's state or local tax authority requires periodic (such as quarterly) tax payments, the employee is responsible to pay these from their own funds. Agencies will reimburse employees for substantially all of these payments through the RITA process, but the agency does not provide a WTA for them. If required to by state or local law, the agency may withhold these from the reimbursement.

(d) There are additional taxes due under the Federal Insurance Contributions Act including Social Security tax, if applicable, and Medicare tax. Current law does not allow Federal agencies to reimburse transferees for these employment taxes on relocation benefits. However, agencies will deduct these taxes from any reimbursements for taxable items.

(e) Home marketing incentive payment. In accordance with part 302-14 of this chapter, agencies may not provide either a WTA or RITA for this incentive.

(f) Any recruitment, relocation, or retention incentive payment that an employee receives. Any withholding of taxes for such payments is outside the scope of this section. Rather, it is covered by regulations issued by the Office of Personnel Management, Treasury's Financial Management Service, and the Internal Revenue Service (IRS).

(g) Any allowances, reimbursements, and/or direct payments to vendors not related to the relocation; for example, a reimbursement for office supplies would not be covered by the WTA, even if it occurred during the relocation.

§ 302-17.22 Procedures for calculation and payment of the WTA.

Each time an agency pays a covered, taxable relocation expense, regardless of whether it is a reimbursement, allowance, or direct payment to a vendor, it is considered “supplemental wages” as defined in 26 CFR 31.3402(g)-1(a) (see also IRS Publication 15, Employer's Tax Guide). Employees owe taxes on the WTA itself because, like most other relocation allowances, it is taxable income. To reimburse employees for the taxes on the WTA itself, agencies compute the WTA by using the grossed-up withholding formula in this section and the appropriate supplemental wage rate, as specified in IRS Publication 15. This rate, along with examples of how to calculate the WTA, is published in an FTR bulletin available at https://gsa.gov/ftrbulletins. The formula for calculating the WTA is: WTA = R/(1 − R) × Expense, where R is the withholding rate for supplemental wages.

§ 302-17.30 Purpose of the RITA.

The purpose of the RITA is to reimburse employees for any taxes that they owe that were not adequately reimbursed by the WTA. As discussed in § 302-17.22, the WTA calculation is based on the income tax withholding rate applicable to supplemental wages. This may be higher or lower than an employee's actual tax rate. The RITA, on the other hand, is based on an employee's marginal tax rate, determined by their actual taxable income and filing status, which allows the agency to reimburse the employee for substantially all of their Federal income taxes. The RITA also reimburses employees for any additional State and local taxes that were incurred as a result of the relocation, because they are not reimbursed in the WTA process.

§ 302-17.31 Procedures for calculation and payment of the RITA.

The procedures for the calculation and payment of the RITA depend on whether the agency has chosen to use a one-year or two-year RITA process. See subpart F of this part for the one-year process and subpart G of this part for the two-year process. Agencies or a major component of the agency determines whether it will adopt a one-year or two-year RITA process. Agencies may use the one-year RITA process for one or more specific categories of employees and the two-year process for one or more other categories.

(a) Employees may ask their agency to recalculate their RITA provided the employee filed the required tax information and amended it, if necessary, in a timely manner. If an employee has completed all Federal, State, and local tax returns, and believes that their RITA should have been significantly different from the RITA that the agency calculated, the employee may ask the agency to recalculate the RITA. This is true for either the one-year or two-year process. With any request for recalculation, the employee must submit a statement explaining why they believe the RITA was incorrect.

(b) The agency may require that an employee also submit amended tax information, the actual tax returns, or both, as attachments to the request for recalculation.

§ 302-17.40 CMTR calculation methodology.

(a) The CMTR is a key element that greatly enhances the accuracy of the calculation of the RITA. Agencies use the information the employee provides on their tax filing status and taxable income to determine the CMTR.

(b) The CMTR is, in essence, a combination of the employee's Federal, State, and local tax rates. However, the CMTR cannot be calculated by merely adding the Federal, State, and local marginal tax rates together because of the deductibility of State and local income taxes from income on the employee's Federal income tax return. The formula prescribed in paragraph (c) of this section for calculating the CMTR, therefore, is designed to adjust the state and local tax rates to compensate for their deductibility from income for Federal tax purposes. Examples of how to calculate the CMTR are published in an FTR bulletin available at https://gsa.gov/ftrbulletins.

(c) The formula for calculating the CMTR is:

Equation 1 to Paragraph (c)

CMTR = F + (1 − F)S + (1 − F)L

Where:

F = Federal marginal tax rate.

S = State marginal tax rate, if any.

L = Local marginal tax rate, if any.

(d) Agencies find the Federal marginal tax rate by comparing the taxable income, as shown in the tax information the employee provides, to the Federal tax tables in the current year's Form 1040-ES instructions.

(e) Agencies find the State and local marginal tax rates that apply to the employee (if any) by comparing the taxable income to the most current state and/or local tax tables provided by the States and localities.

(f) The procedures for calculating the CMTR are the same for the one-year and two-year RITA processes.

§ 302-17.41 Applicable State marginal tax rate and effect on the RITA and an employee's State tax return(s).

If two or more States that are involved in an employee's relocation impose an income tax on relocation benefits, then the employee's relocation benefits may be taxed by both States. Most commonly, the old and new duty stations are in the two States involved. The following table lays out the possibilities:

Table 1 to § 302-17.41

If:

But:

The agency will use the following as the State marginal tax rate in the CMTR:

The RITA will include an appropriate allowance for:

Employee's

action:

Only one involved State has a State income tax

The marginal tax rate of the one State that taxes income

Taxes incurred in that State

Pay the taxes required by the State that taxes income.

Each involved State taxes a different set of the relocation benefits, with no overlap

The average of the marginal tax rates for each State involved

Taxes incurred in all involved States

File tax returns in each involved State, and pay the applicable taxes.

Two or more involved States tax some of the same relocation benefits

All involved States allow an adjustment or provide a credit for income taxes paid to other States

The marginal tax rate of the State that has the highest State income tax rate

Taxes incurred in all involved States

File tax returns in each involved State, take the appropriate credits and/or adjustments, and pay the applicable taxes.

Two or more involved States tax some of the same relocation benefits

One or more involved States does not allow an adjustment or provides a credit for income taxes paid to other States

The sum of all applicable State marginal tax rates

Taxes incurred in all involved States

File tax returns in each involved State, and pay the applicable taxes. This may result in paying taxes in more than one State on the same relocation benefits.

§ 302-17.42 Applicable local marginal tax rate(s) used for calculation.

(a) If an employee incurs a local tax liability, the agency will validate the applicable local marginal tax rate(s) and use it (them) in the CMTR formula.

(b) If an employee incurs a local income tax liability in more than one locality, then the agency should follow the rules described for State income taxes in § 302-17.41 to calculate the local marginal tax rate that will be used in the CMTR formula and to compute the RITA, and the employee should follow the rules in § 302-17.41 to determine their actions.

(c) If a locality in which an employee incurs income tax liability publishes its tax rates in terms of a percentage of the Federal or State taxes, then the agency must convert that tax rate to a percentage of the employee's income to use it in computing the CMTR. This is accomplished by multiplying the applicable Federal or State tax rate by the applicable local tax rate. For example, if the State marginal tax rate is 6 percent and the local tax rate is 50 percent of State income tax liability, the local marginal tax rate stated as a percentage of taxable income would be 3 percent.

§ 302-17.43 Income tax liability to the Commonwealth of Puerto Rico.

A Federal employee who is relocated to or from a point, or between points, in the Commonwealth of Puerto Rico may be subject to income tax by both the Federal Government and the government of Puerto Rico. However, under current Puerto Rico law, an employee receives a credit on their Puerto Rico income tax for the amount of taxes paid to the Federal Government. Therefore:

(a) If the applicable Puerto Rico marginal tax rate, as shown in the tables provided by the Commonwealth of Puerto Rico, is equal to or lower than the applicable Federal marginal tax rate, then the agency uses the Federal marginal tax rates and the formula in § 302-17.40(c) in calculating the CMTR.

(b) If the applicable Puerto Rico marginal tax rate, as shown in the tables provided by the Commonwealth of Puerto Rico, is higher than the applicable Federal marginal tax rate, and if all of the States involved either have no income tax or allow an adjustment or credit for income taxes paid to the other state(s) and Puerto Rico, then the agency uses the rate for Puerto Rico in place of the Federal marginal tax rate in the formula in § 302-17.40(c).

(c) If the applicable Puerto Rico marginal tax rate, as shown in the tables provided by the Commonwealth of Puerto Rico, is higher than the applicable Federal marginal tax rate and one or more of the state(s) involved does not allow an adjustment or credit for income taxes paid to the other state(s) and/or Puerto Rico, then the agency uses the following formula:

Equation 1 to Paragraph (c)

CMTR = P + S + L

Where:

P = Puerto Rico marginal tax rate.

S = State marginal tax rate, if any.

L = Local marginal tax rate, if any.

§ 302-17.44 Income tax liability to the Commonwealth of the Northern Mariana Islands or any other territory or possession of the United States.

If an employee is relocated to, from, or within the Commonwealth of the Northern Mariana Islands or any territory or possession of the United States, the agency will have to determine the tax rules of that locality and then include those taxes in the RITA calculation, as applicable.

§ 302-17.45 Procedures when a State treats an expense as taxable even though it is nontaxable under the Federal IRC.

If one or more of the States where an employee has incurred tax liability for relocation expenses treats one or more relocation expenses as taxable, even though it (they) are nontaxable under Federal tax rules, employees may be required to pay additional State income tax when they file tax returns with those States. In this case, the agency calculates a state gross-up to cover the additional tax liability resulting from the covered relocation expense reimbursement(s) that are nontaxable under Federal, but not State tax rules. The agency calculates the State gross-up and then adds that amount to the RITA. The agency will use this formula to calculate the state gross-up:

Equation 1 to § 302-17.45

Where:

F = Federal Marginal Tax Rate.

S = State Marginal Tax Rate.

C = CMTR.

N = Dollar amount of covered relocation expenses that are nontaxable under Federal tax rules but are taxable under State tax rules.

All information, except “N,” can be found in previous calculations (if moving to, from, or within Puerto Rico, follow the rules in § 302-17.43 to determine when to substitute “P” for “F”).

“N” is determined as follows:

1. Take the dollar amount of reimbursements, allowances, and direct payments to vendors treated as nontaxable under Federal tax rules.

2. Subtract the dollar amount of reimbursements, allowances, and direct payments to vendors treated as nontaxable by the State.

3. The difference represents “N.”

Note 1 to § 302-17.45:

This calculation is the same, regardless of whether the agency has chosen to use the one-year or two-year RITA process.

§ 302-17.50 Requirement to provide tax information to the agency to make the RITA calculation possible under the one-year process.

Employees should provide the information their agency requires to make the RITA calculation. This will include tax information for any Federal and State tax returns filed for the year that the employee received covered taxable relocation expenses. Employees should submit this information as soon as they receive their relocation orders, or as soon as they file their tax returns for the most recent tax year, whichever occurs later.

§ 302-17.51 When to provide amended tax information to the agency.

Employees should submit amended tax information to their agency under the one-year process whenever the tax information previously provided changes, and employees should continue to amend the information until they have received the last W-2 from their agency in connection with a specific relocation. In particular, employees should submit amended information whenever:

(a) Their filing status changes;

(b) Their income changes enough that their income, including WTA and RITA, might put the employee into a different tax bracket; or

(c) They have taxable relocation expenses in a second or third calendar year.

§ 302-17.52 Failure to provide required tax information to the agency.

If an employee does not provide their agency with the required tax information and/or amend it when necessary, the agency will switch to the 2-year process, and because the WTA is an advance of the income tax expenses, employees will be liable to repay the full amount of the WTA that the agency has paid to the IRS. See subpart G of this part.

§ 302-17.53 RITA calculation methodology and procedures under the one-year process.

(a) Agencies provide allowances to an employee, reimburse the employee for vouchers that are submitted, and pay certain relocation vendors directly, all during the calendar year as described in subpart B of this part. Some of these reimbursements, allowances, and direct payments to vendors are taxable income to the employee, as described in subpart A of this part. The agency computes a WTA and reports the WTA to the IRS as taxes withheld for the employee for each of these taxable reimbursements, allowances, and direct payments to vendors. The agency may make the WTA optional. However, if the agency is using a one-year RITA process, there is no advantage to an employee in choosing not to receive the WTA, because the agency will adjust the WTA payment to the IRS. See paragraph (f)(1) of this section.

(b) The agency establishes a cutoff date after which it will not issue reimbursements or allowances to an employee or make direct payments to relocation vendors for the rest of the calendar year.

(c) If the tax information provided changes after an employee has submitted the initial version, the employee must submit amended tax information no later than the agency's cutoff date.

(d) During the period between the cutoff date and the end of the calendar year, the agency calculates the RITA.

(e) The RITA is itself taxable income. To account for taxes on the RITA, the agency will gross-up the RITA by using a gross-up formula that multiplies the grossed-up CMTR by the total of all covered taxable relocation benefits, and then subtracts the grossed-up WTA from that total. That is:

Equation 1 to Paragraph (e)

Where:

C = CMTR.

R = Reimbursements, allowances, and direct payments to vendors covered by WTA.

Y = Total grossed-up WTA paid during the current year.

(f) The RITA is likely to be different from the sum of the WTA computed and reported during the year, because the WTA is calculated using a flat rate, established by the IRC, while the RITA is calculated using the CMTR. Therefore:

(1) If the calculation in paragraph (e) of this section results in a negative value (that is, if the agency's calculation shows that it withheld and reported too much money as WTA), then the agency will send an adjustment to the IRS using Form 941. In this case, the agency does not make a RITA payment.

(2) If the calculation in paragraph (e) of this section results in a positive value (that is, if the agency's calculation shows that it did not withhold enough money for the income taxes), then the agency will pay a RITA to the employee before the end of the calendar year and report it to the IRS as part of the income for that year.

(g) Shortly after the end of the calendar year, the agency will provide one or two W-2 Forms. At the agency's discretion, an employee may receive one W-2 that includes all of the taxable relocation expenses, WTA, and RITA (if any), along with their payroll wages, or an employee may receive one W-2 for their payroll wages and a separate one for their taxable relocation expenses, WTA, and RITA.

(h) Employees must use all W-2(s) that they have received to file their tax returns. On those returns, employees must include all taxable relocation expenses shown on their W-2(s) as income, including the WTA and RITA (if any). Employees must also include all WTA as withholding, in addition to the standard withholding from their payroll wages.

(i) If an employee finished their relocation within one calendar year, and the agency paid all of the relocation reimbursements, allowances, and direct payments to vendors in the same calendar year, before the cutoff date, then the employee's tax returns for that calendar year are the end of their relocation tax process. If, on the other hand, the agency reimburses an employee for relocation expenses, or pays allowances or relocation vendors on the employee's behalf, during a second (and possibly a third) calendar year, then the employee and the agency repeat the process in this paragraph (i) for each of those years.

§ 302-17.60 Definition of the terms “Year 1” and “Year 2” used in the two-year RITA process.

(a) Year 1 is the calendar year in which the agency reimburses the employee for a specific expense, provides an allowance, or pays a vendor directly. If an employee's reimbursements, allowances, and/or direct payments to vendors occur in more than one calendar year, the employee will have more than one Year 1.

(b) Year 2 is the calendar year in which the employee submits their RITA claim and the agency pays the RITA.

(c) In most cases:

(1) For every Year 1 an employee will have a corresponding Year 2;

(2) Every Year 2 immediately follows a Year 1; and

(3) Year 2 is the year in which the employee files a tax return reflecting the remaining tax liability for taxable reimbursement(s), allowance(s), and/or direct payments to vendors in each Year 1.

§ 302-17.61 When WTA is optional under the two-year process.

If an agency makes the WTA optional, an employee may choose to not receive the WTA. When deciding whether or not to receive the WTA, employees should consider the following:

(a) Whether their marginal Federal tax rate will be equal to or higher than the supplemental wage rate for the calendar year in which the employee received the majority of their relocation reimbursements. If this is expected, the employee may want to elect to receive the WTA.

(b) Whether their marginal Federal tax rate will be less than the supplemental wage rate for the calendar year in which the employee received the majority of their relocation reimbursements. If this is expected, the employee may want to decline receiving the WTA to avoid or limit possible overpayment of the WTA, the so-called “negative RITA” situation. In a “negative RITA” situation, employees must repay some of the WTA in Year 2. However, even if an employee's marginal Federal tax rate will be less than the supplemental wage rate, the employee may want to accept the WTA so that their initial reimbursement is larger.

§ 302-17.62 Information to include on employee tax returns for Year 1 under the two-year process.

(a) Agencies provide allowances to employees, reimburses employees for vouchers that they submit, and pays certain relocation vendors directly, all during the same calendar year, as described in subpart B of this part. Some of these reimbursements, allowances, and direct payments to vendors are taxable income to the employee. Agencies compute a WTA and report that withholding to the IRS for each of these that is taxable. This is Year 1 of the two-year process.

(b) If an agency makes the WTA optional to the employee and they have chosen not to receive the WTA, then the agency computes withholding tax for each taxable reimbursement, allowance, and direct payment, and reports that withholding to the IRS.

(c) Shortly after the end of the calendar year, agencies provide one or more W-2 forms to employees. At its discretion, an agency may include all of an employee's taxable relocation expenses and WTA (if any) in one W-2, along with the employee's regular payroll wages, or it may provide one W-2 for the regular payroll wages and a separate W-2 for the taxable relocation expenses and WTA (if any).

(d) At approximately the same time as the agency provides the employee a W-2(s), it also may provide an itemized list of all relocation benefits and the WTA (if any) for each benefit. Employees should use this statement to verify that the agency has included all covered taxable items in its calculations and to check the agency's calculations.

(e) Employees must submit all W-2s that they have received with their Year 1 tax returns. On those returns, employees must include all taxable relocation expenses during the previous year as income. Furthermore, employees must include the WTA (if any) as tax payments that the agency made for them during the previous year, in addition to the regular withholding of payroll taxes from their salary.

§ 302-17.63 Requirement to provide tax information to the agency to make the RITA calculation possible under the two-year process.

Employees must provide the information their agency requires to make the RITA calculation. This will include tax information for any Federal and State tax returns filed for the year that the employee received covered taxable relocation expenses. Employees must submit the “required tax information” in Year 2, along with their RITA claim, after they file their income tax return. If an agency pays any taxable expenses covered by the WTA in more than one year, then the employee will have to file a RITA claim each year. Agencies establish the deadline each year for filing of the RITA.

§ 302-17.64 Failure to provide required tax information to the agency.

The WTA is an advance on an employee's income tax expenses, thus if an employee does not provide the required tax information and file the RITA claim in a timely manner, the agency will require the employee to repay the entire amount of the withholding and WTA (if any) that the agency has paid.

§ 302-17.65 How to claim the RITA under the two-year process.

(a) To claim the RITA under the two-year process, employees must file a RITA claim and provide the required tax information that the agency requests.

(b) Agencies will calculate the actual RITA after the employee submits their RITA voucher and the required tax information. Employees should perform the RITA calculation for themselves, as a check on the agency's calculation, but they are not required to put the “right answer” on the voucher that is submitted to claim the RITA.

§ 302-17.66 RITA calculation methodology and procedures under the two-year process.

(a) Agencies will calculate the RITA after receipt of the RITA voucher.

(b) The RITA is itself taxable income to an employee. To account for taxes on the RITA, the agency will gross-up the RITA by applying the Combined Marginal Tax Rate (CMTR) to the final amount rather than the reimbursed amount.

(c) Thus, the agency calculates the RITA by multiplying the CMTR (using the State and local tax tables most current at the time of the RITA calculation) by the total of all covered taxable relocation benefits during the applicable Year 1, and then subtracting any WTA(s) from the same Year 1 from that total. That is:

Equation 1 to Paragraph (c)

Where:

C = CMTR.

R = Reimbursements, allowances, and direct payments to vendors covered by WTA during Year 1.

Z = Total grossed-up WTAs paid during Year 1.

Note 1 to paragraph (c):

If an agency offers the employee the choice, the WTA is optional. If the employee has declined the WTA, enter zero for element Z in the calculation in this paragraph (c).

(d) The RITA is likely to be different from the sum of the WTA(s) paid during Year 1, if any, because the WTA is calculated using a flat rate, established by the IRC, while the RITA is calculated using the CMTR. Therefore:

(1) If the RITA calculation this section results in a negative value (that is, if the agency's calculation shows that it withheld and reported too much money as income taxes), then the agency will report this result to the employee and will send the employee a bill for the difference, to repay the excess amount that it sent to the IRS on the employee's behalf as withheld income taxes. The IRS will credit the employee for the full amount of withheld taxes, including the excess amount, on the income tax return for Year 1; therefore, employees must repay the excess amount to their agency within 90 days, or within a time period set by the agency. If an employee is required to repay an amount in Year 2 that was included as wages on the W-2 in Year 1, employees may be entitled to a miscellaneous itemized deduction on their Federal income tax return in Year 2.

(2) If the RITA calculation in this section results in a positive value (that is, if the agency's calculation shows that it did not withhold enough money as income taxes), then the agency will pay the RITA before the end of Year 2 and will report it to the IRS as part of the employee's income for that year. Also, after the agency has paid the RITA, it will provide a W-2 that shows the RITA as taxable income.

(e) At an agency's discretion, employees may receive one W-2 that includes all of their taxable relocation expenses, WTA (if any), and RITA (if any), along with their regular payroll wages, or employees may receive one W-2 for their regular payroll wages and a separate one for their taxable relocation expenses, WTA, and RITA.

§ 302-17.67 Reporting RITA and paying taxes on the RITA under the two-year process.

When income taxes are due for Year 2, employees must report the RITA, if any, as taxable income on their Federal, State, and local tax returns.

(a) If an employee's relocation process results in only one Year 2, or if the previous year was the last Year 1, the RITA is the only amount that an employee reports as income resulting from their relocation for that Year 2.

(b) If, on the other hand, an employee's relocation process results in more than one Year 2 (if, for example, the employee incurred relocation expenses during more than one calendar year), then, except for the last Year 2, the employee will need to report reimbursements, allowances, direct payments to vendors, and WTA(s), if any, for succeeding Year 1's at the same time that they report each Year 2's RITA.

§ 302-17.100 Agency responsibilities for taxes on relocation expenses.

To ensure that all provisions of this part are fulfilled, agencies must:

(a) Prepare a relocation travel authorization that includes an estimate of the WTA and RITA, to obligate the funds that will be needed.

(b) Determine, in light of the specific circumstances of each employee relocation, which reimbursements, allowances, and direct payments to vendors are taxable, and which are nontaxable.

(c) Decide whether or not the agency will allow individual employees and/or categories of employees to choose not to receive the WTA.

(d) Calculate the WTA and credit the amount of the WTA to the employee at the time of reimbursement.

(e) Prepare the employee's W-2 Form(s) and ensure that it (they) reflect(s) the WTA.

(f) Provide each employee an itemized list of relocation expenses after the end of each calendar year in which the agency provided an allowance, reimbursement, or direct payment to a vendor.

(g) Establish processes for identifying the relevant Federal, State, and local marginal tax rates and for keeping that information current.

(h) Establish processes for identifying states that treat a reimbursement or direct payment to a vendor as taxable even though it is nontaxable under the Federal IRC, and for keeping that information current.

(i) Calculate the employee's CMTR(s).

(j) Decide whether the agency will use the one-year or two-year RITA process and whether the agency will use different processes (that is, one-year or two-year) for different groups of employees within the agency.

(k) Make sure the RITA calculation is done correctly and in a timely manner, whether agency policies call for the calculation to be done by the agency or by a third party.

(l) Make sure that payment of the RITA occurs in a timely manner (this is especially critical for the one-year process).

(m) Develop criteria for accepting and rejecting requests for recalculation of RITA.

(n) Establish a process for recalculating the RITA when the employee's request for recalculation is accepted.

(o) Consult with the IRS for clarification of any confusion stemming from taxes on relocation expenses.

§ 302-17.101 Agency requirements if an employee fails to file and/or amend the required tax information prior to the required date.

(a) If a relocating employee does not provide the required tax information prior to the required date, and the agency is using a one-year RITA process, the agency is to switch to a two-year RITA process and send a written warning to the employee reminding them of the requirement and informing them that if they do not submit the required information the agency may declare the entire amount of the WTA forfeited.

(b) If the relocating employee does not provide the required tax information prior to the required date, and the agency is using a two-year RITA process, the agency is to send the employee a written warning informing them they have 60 days to file or amend their RITA claim and provide the required tax information or the agency will declare the WTA that they have already paid forfeited and due as a debt to the Government.

(c) If the relocating employee chooses not to receive the WTA and fails to file a RITA claim or provide the required tax information prior to the required date, the agency is to send the employee a written warning that they have 60 days to file. If the employee still fails to file, the agency may close the case file and refuse any later claims for RITA related to this specific relocation.